The government plan to replace the existing four-bracket excise tax on automobiles with a five-tier structure imposing higher rates on the pricier luxury-car segment should not prevent the industry from sustaining the growth momentum, the Department of Finance said.
According to Finance Undersecretary Karl Kendrick T. Chua, in countries such as Indonesia and Malaysia, the automobile excise tax is as high as 125 and 105 percent, respectively, and yet their luxury car markets continue to thrive.
In Malaysia, luxury-car sales grew by 3.9 percent in 2016, while in Indonesia, the luxury-car manufacturer BMW recently expanded its model list and car-assembly operations for both the local and export markets because of continued demand despite the high tax.
The same is true in the Philippines, where Satoru Suzuki, president of Toyota Motor Philippines, recently ruled out revising their production output this year, even as they anticipate an initial drop in vehicle sales, because of the looming car-price increases under the tax-reform package. Suzuki said demand should pick up again soon enough.
Reforming the excise-tax system for automobiles is among, the provisions of House Bill (HB) 5636 or the proposed Tax Reform for Acceleration and Inclusion Act, which now pending before the Senate.
HB 5636 encapsulates the first package of the government’s Comprehensive Tax Reform Program, which aims to lower the personal-income tax and make up for the consequent revenue loss by plugging tax leakages, limiting the value-added tax exemptions and adjusting the excise tax on fuel, among other measures.
“The Duterte administration’s tax-reform agenda is not meant to unduly burden taxpayers. It is meant to shift the burden to those who should pay more but, have for a long time, avoided payment or enjoyed a free ride from blanket exemptions and special treatment,” Chua said.
According to Chua, no amount of tax reforms in the Bureaus of Internal Revenue (BIR) and of Customs (BOC) will be enough to fund the massive spending on infrastructure and social services, because the current system has flaws that can only be corrected by implementing reforms in tax policy.
“We have a tax system that is inequitable, complex and inefficient. Even if [the] BIR and [the] BOC were 100-percent efficient, they will still be unable to achieve the collection targets, because the tax system has inherent deficiencies that lead to revenue erosion and large-scale leakages,” Chua added.
The structural weaknesses include several tax rates or tax bases that are not indexed to inflation and have eroded collection goals; the government grants excessive exemptions and special treatments, many without good basis; and highly restrictive bank secrecy laws preventing revenue agencies from fully auditing and enforcing tax laws.
Chua said both tax administration and policy reforms are urgently needed, along with reforms in the way the government spends its budget, which are being corrected with the filing of HB 5590.
The bill aims to reform the budget process by enforcing greater accountability in public financial management (PFM), promote fiscal sustainability, strengthen Congress’s power of the purse, institute an integrated PFM system and increase budget transparency and participation.